Will Nokia's Q3 Earnings be Hurt by a Top Line Contraction?

Nokia Corporation NOK is set to report its third-quarter 2024 results on Oct. 17, before the opening bell. In the last reported quarter, it reported adjusted earnings of 6 cents per share.

The company is expected to witness a revenue contraction year over year, owing to demand softness in several business segments. Intensifying competition, macroeconomic headwinds, and growing geopolitical unrest are major headwinds. However, efforts to bolster the position in the 5G ecosystem with a strong emphasis on innovation and portfolio expansion are positive.

Factors at Play

In the third quarter, Nokia secured a multi-year agreement for an undisclosed amount from AT&T Inc. to help modernize the fiber infrastructure of the telecom carrier. Per the five-year deal, Nokia will deploy its Lightspan MF and Altiplano platforms to develop state-of-the-art networks to cater to the growing demand for more capacity and enhanced broadband services. Nokia has also entered into a three-year agreement with Vodafone Idea Limited to enhance and expand its 4G and 5G networks in India.

The company also inked a multi-year 5G RAN (Radio Access Network) contract with MEO, one of Portugal's leading mobile operators to upgrade its network infrastructure. These are likely to have supported Nokia's top line during the quarter.

During the quarter, Nokia inked a partnership agreement with Telekom Malaysia to enhance data center connectivity across Malaysia by deploying a cutting-edge Dense Wavelength Division Multiplexing network. A Taiwan-based broadband operator, Homeplus, deployed Nokia's state-of-the-art PON fiber solution to strengthen network visibility and improve end-user experience.

A prominent Brazilian telecommunication company, TiM Brasil, has leveraged NOK's industry-leading 5G AirScale portfolio to expand its 5G Radio Access Network coverage across Brazil. These customer wins are expected to have a positive impact on the third-quarter results.

In the quarter under review, Nokia Bell Labs, the research wing of Nokia, inked a year-long, non-binding memorandum of understanding with e& to collaborate on research & development efforts on artificial intelligence-based use cases across various industrial sectors.

However, a slowdown in 5G investment in several regions, including India, intensifying competition is expected to have hindered Nokia's top-line growth. Growing geopolitical instability remains a major concern.

Our estimate for revenues from the Mobile Networks vertical is pegged at €1.86 billion ($2.04 billion), suggesting a 13.6% year-over-year decline. For the Network Infrastructure segment, our estimate for revenues is pegged at €1.87 billion ($2.05 billion), implying 21.9% year-over-year growth. Revenues from Cloud & Network Services are estimated at €789.3 million ($867.4 million).

For the September Quarter, the Zacks Consensus Estimate for the company's total revenues is pegged at $5.10 billion, indicating a decrease from $5.42 billion reported in the prior-year quarter. Adjusted earnings per share are pegged at 7 cents, suggesting an increase from the prior-year quarter's tally of 5 cents.

Earnings Whispers

Our proven model does not conclusively predict an earnings beat for Nokia this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy), or 3 (Hold) increases the chances of an earnings beat. This is not the case here.

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is 0.00%, with both pegged at 7 cents.

Zacks Rank: Nokia currently has a Zacks Rank #2.

Stocks to Consider

Here are some companies you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this season:

Corning Incorporated GLW is set to release quarterly numbers on Oct. 29. It has an Earnings ESP of +1.16% and carries a Zacks Rank #3.

The Earnings ESP for T-Mobile US, Inc. TMUS is +0.70%, and it carries a Zacks Rank of 3. The company is scheduled to report quarterly numbers on Oct. 23.

The Earnings ESP for Qorvo Inc. QRVO is +0.16%, and it carries a Zacks Rank of 3. The company is scheduled to report quarterly numbers on Nov. 06.

Note: €1 = $1.09893 (period average from July 1, 2024, to Sept. 30, 2024).

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